Potential kicker makes reaching adequate school funding harder

Tuesday, May 16, 2017

In the bizarro world of state budget forecasting, more translates to less: Above-expected tax collections in Tuesday’s revenue forecast are causing headaches for legislators wrestling with a $1.4 billion budget shortfall.

Oregon’s Office of Economic Analysis predicts 2015-17 income will exceed earlier projections by 2.4 percent and the state will have to return to taxpayers $407.8 million, known as the kicker.

Right now, Oregon is projected to be roughly $70 million over the kicker threshold. There is a one-in-three chance that the estimates are off by enough that the kicker won’t happen, State Economist Mark McMullen told the Senate and House revenue committees. The final forecast, which will determine the kicker, will be released Aug. 23.

The May forecast in odd-numbered years provides the projected income for the next biennium and thus is the basis for the state budget, which must always balance. The May forecast also provides the next-to-last forecast on the ending biennium. If the state brings in more personal income taxes than it had budgeted to spend, it gets to roll that money into the next biennium – but there’s a catch: the kicker.

If state revenue exceeds the close of session budget forecast by more than 2 percent, all that surplus goes back to taxpayers. In the March forecast, state revenue was trending ahead of expectations by about $114 million, money that legislators could roll into the next budget. But if there is a kicker, that money is off the table.

Legislators have to pass budgets based on the May numbers. The forecast also increased for the 2017-19 biennium revenue, somewhat blunting the loss of kicker money.

“We have approximately $187 million additional dollars to address the shortfall in the state budget,” said Rep. Nancy Nathanson (D-Eugene) and Sen. Richard Devlin (D-Tualatin) in a joint email. Devlin and Nathanson are co-chairs of the Joint Committee on Ways and Means, which determines state budget policy.

The state is still $1.4 billion short of what it contends is needed to maintain current service levels, though.

The biggest item in Oregon’s budget is the State School Fund.

K-12 schools need $8.4 billion to avoid cuts to staff, instructional time and programs, according to school business officials. In April, the Joint Committee on Ways and Means proposed a $7.8 billion State School Fund allocation, which would be devastating for many districts. Based on that, some districts have already started planning cuts.

“Now that we have a clear picture from the May forecast, it’s time to shift full gear into solving our state’s long-term revenue and budget crisis,” House Majority Leader Jennifer Williamson (D-Portland) said in a news release. “Without bold action, we’ll face many more years of cuts that will lead to more overcrowded classrooms, shorter school years and cuts to health care and senior services.”

The forecast contained a few drops of good news for schools.

Corporate tax collections have also been above forecast, likely triggering a corporate kicker. Because of a 2012 measure, that kicker would send approximately $76 million to the State School Fund.

Schools also are supposed to get money from marijuana sales, although nothing has been paid out yet because the collection system is incomplete. According to statute, 40 percent of marijuana profits go to the Common School Fund, which creates interest income for schools. The forecast predicts a payout of $84 million in the next biennium. However, Senate Bill 845 could change the payout to 30 percent to the State School Fund and 10 percent to the Community College Support Fund.

Lottery sales provide another indirect source of education funding. The May revenue forecast reports the effect of new lottery terminals is decreasing but the impact from the ilani Casino Resort in nearby Washington has been less than expected in the short time it’s been open.

The Education Stability Fund, one of Oregon’s two general reserve accounts, gets 18 percent of Oregon Lottery profits. The forecast projects the lottery will add $204 million to the fund, for a 2017 balance of $338 million.

The Education Stability Fund was set up by a constitutional amendment in 2002. Withdrawals require one of three triggers – a decline in employment, a projected budgetary shortfall or a declaration of a state of emergency – as well as a three-fifths vote from the Legislature.

“The Legislature will have some tough choices to make given the recent forecast with the expected personal kicker,” said Lori Sattenspiel, OSBA interim director of legislative services. “Education needs to be a priority for the Legislature. No matter the final budget, they must make a minimum investment of $8.4 billion in K-12 education just to avoid losing ground.”